Digital Article Repository: Interest Rates 

March 18, 2022

Inside the Fed’s Interest Rate Hike 

March 17, 2022 — With prices on consumer goods rising the Federal Reserve approved its first interest rate increase since 2018 by a quarter percentage point, or 25 basis points this past Wednesday. In an effort to address climbing inflation without disrupting economic growth, the idea behind this action appears to be sustainability: a little pain today could result in less pain in the future.

In 2021, consumers added new credit card debt to the tune of $87.3B, and this rate hike could cost people with credit card debt an extra $1.6 – $3.2 billion over the course of 2022, according to two WalletHub reports, Credit Card Debt Study and Fed Rate Hike Report.

Additionally, the Federal Open Market Committee (FOMC) highlighted the potential for six more rate hikes in the near future. Median projections show increases to around 2.75% by 2023 year-end, resulting in the highest since 2008. The Committee, led by Chair Jerome Powell, voted 8-1 (St. Louis Fed President James Bullard dissented in favor of a larger half-percentage-point increase) on the rate increase after holding borrowing costs near zero to insulate the economy from the COVID-19 pandemic.

In an official statement, the FOMC said it also “anticipates that ongoing increases in the target range will be appropriate.” Responding to the Fed’s nearly $9T balance sheet the FOMC further stated, “In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.”

 

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Footnote to chart:Most officials expect the fed-funds rate to rise to at least 1.875% by the end of this year and 2.75% by the end of 2023, holding there in 2024.” Nick Timiraos, WSJ “Fed Raises Interest Rates for First Time Since 2018”

 


 

Fed’s Michelle Bowman Opens Door to Larger March Rate Hike

Courtesy of  Sylvan Lane, The Hill

Published February 21, 2022 Federal Reserve Governor Michelle Bowman suggested Monday the central bank could raise interest rates at a faster pace than in previous cycles, as inflation remains “much too high.”

In a Monday speech to a convention of bankers, Bowman said she supported raising rates when the Fed’s monetary policy panel — the Federal Open Market Committee (FOMC) — meets March 15-16. She added she will be “watching the data closely to judge the appropriate size of an increase,” opening the door to a larger-than-typical rate hike.

“My intent would be to take forceful action to help reduce inflation, bringing it back toward our 2 percent goal, while keeping the economy on track to continue creating jobs and economic opportunity for Americans,” Bowman said at the American Bankers Association Community Banking Conference in California.

The FOMC is almost certain to raise interest rates next month — almost two years to the day since it slashed its baseline interest range to 0 to 0.25 percent as the emerging COVID-19 pandemic roiled the economy. While the Fed usually hikes or cuts interest rates in 0.25 percent increments, some investors expect the bank to raise rates by 0.5 percentage points in March.

“Between now and then, it’s very important that we continue to watch how the economy develops, and understand whether or not things are improving or getting worse as we’re approaching that decision,” Bowman said during a question and answer session with American Bankers Association President and CEO Rob Nichols following her speech.

Read the entire speech “High Inflation and the Outlook for Monetary Policy” by Governor Michelle W. Bowman

Read the remainder of the article from The Hill here